Doing the Math on OCTG in Q3
As the class of “2020” reconvenes at school this month we too are putting on our thinking caps and dusting off our previous 2019 forecasts to see if they stood the test of time. Reviewing the past couple months, it’s almost as if fall descended on the oil patch in June when we detected a chill in the air during our midyear market conversations. Sadly, our below-average updated annual projections now reflect the cooling drilling activity.
“Old school” conventional thinking would have range-bound oil prices in the mid-50s to low-60s all but guarantee a steady stream of OCTG demand but that notion is virtually a pipe dream in 2019. With the estranged environment that E&Ps find themselves in relationship to Wall Street there are no absolutes when it comes to predicting operator behavior. Given that, we soldiered through the minefield nonetheless.
Looking back on what now feels like ancient history (November 2018), our analysis (based on more positive bellwethers at the time) led us to project slightly improved forecasts for the rig count and consumption than we saw for the full year 2018. Upon further consideration of our ‘altered’ reality and the fact “change is the only constant” we revised our calculations for the rig count, consumption and OCTG pricing in this month’s Report. Our prognosis at this juncture is for a steeper rig count decline although a potential uptick from the recent drone attack on one of Saudi Arabia’s largest oilfields knocking out half its oil capacity could increase our prediction. Along with our lowered expectations for the rig count we anticipate additional softening for OCTG demand and prices, too.
On a side note, in our review of a profusion of stats it was unusual to see how closely 2019 consumption has tracked with 2018. In fact, our consumption figure YTD/July was so close to July of 2018 as to render the percent change Y/Y of no significant change. That was a first. This only reinforces how many could assume this year would unfold similarly considering all prior indicators and the fact E&Ps haven’t always displayed this degree of discipline. Unfortunately, that’s where the similarity ends as the delta between 2018 and 2019 consumption based on what we’ve modeled for the remaining months broadens significantly from there.
Following our exclusive quarterly OCTG Inventory Yard Survey in October we’ll work to fill in “the blanks” on 2020 as we prepare to issue our next set of OCTG forecasts in the November Report. It is there where we will pore over our many lessons learned to answer the age-old question: what does the new year hold for OCTG? Until then we can’t help but wonder, is the writing on the wall or will we be saved by the bell?
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Photo Courtesy ConocoPhillips Company
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